Fitch Publishes Report On National Hydroelectric Power.

Business Editors

HONG KONG--(BUSINESS WIRE)--Aug. 25, 2003

Fitch Ratings, the international rating agency, has today published a report on National Hydroelectric Power Corp. (NHPC) of India.

In the report, Fitch points out that India suffers from widespread and chronic power deficits. India's generation growth has slowed in recent years to some 2%-3% not due to lack of demand, but due to substantial inadequacies in both generation and transmission infrastructure. Power quality remains poor, and substantial supply shortfalls remain on the horizon for the foreseeable future.

Fitch also noted that hydropower accounts for a large proportion of capacity additions under government plans to close India's power deficits by the year 2012. Of the 104.6 gigawatts of planned capacity additions in the government's tenth and eleventh five-year plans (2002-2007 and 2007-2012), 34% is allocated to hydropower, 53% of which is to be constructed by NHPC. The five-year plans are the government's long term plans for the power sector.

Fitch expects high capital expenditures required by the plans to pressure NHPC's ratios going forward, but it notes that such pressures will likely be reduced by continuous drawing of equity funds from the government, and by additional revenues as new facilities come online.

Fitch said that NHPC's linkages to the government are reflected in:

-- its history of direct government funding in the form of equity

capital funding some 40%-50% of each project;

-- government guarantees covering 83% of NHPC's private bank debt

(29% of total debt); and

-- the Reserve Bank of India's role in ensuring payment of

invoices by NHPC's clients, the state utilities and the state

electricity boards.

Fitch said that government funds has allowed NHPC to fund large capex programs to date, and that it expects the company to secure needed funds in a timely fashion. Principal risks in this regard, Fitch said, relate to any significant reduction or postponement in government funding, which, besides obvious cash implications, would signal withdrawal of government support. Fitch expects such risks to be moderated by NHPC's status as a key vehicle for the government's hydro development plans, which constitute a principal component of the government's broader aims to close India's power deficits.

In the meantime, Fitch warned that active capacity development would elevate NHPC's exposure to execution and construction risks. Fitch also noted that while a government-backed settlement has reduced exposure to the financially distressed state utilities and state electricity boards, residual counterparty risks remain.